LAHORE: The tobacco industry in Pakistan suffers heavily due to the rampant sale of illicit cigarettes, which now account for over 50% of the total market.
This alarming figure is primarily driven by the significant price gap between legal and illicit tobacco products. High taxation on legal tobacco brands has made them considerably more expensive, while non-compliant manufacturers evade taxes, enabling them to sell their products at a fraction of the cost. “This unfair competition not only undermines legitimate businesses but also causes massive revenue losses to the national exchequer, estimated to exceed PKR 300 billion annually”, said Osama Siddiqui, a macroeconomic analyst.
It may be noted that the Prime Minister Shehbaz Sharif, while chairing a meeting on the country’s economic situation recently, reaffirmed the government’s resolve to tackle tax evasion and illicit trade. Stressing the need for collective responsibility, the Prime Minister directed authorities to expedite measures against those involved in tax evasion, particularly in the tobacco sector, which remains a significant source of revenue leakage. He emphasized that national progress is only possible when every citizen and entity fulfills their fiscal obligations.
Siddiqui said, “Weak enforcement of existing regulations and the failure to fully implement the track-and-trace system have further exacerbated the problem. Non-registered tobacco brands continue to operate unchecked, exploiting regulatory gaps to flood the market with untaxed products. Despite the introduction of measures to monitor production and distribution, poor oversight and delays in execution have allowed these illegal operators to thrive.”
According to him, the mushroom growth of the illicit tobacco sector is a direct consequence of weak enforcement and the excessive price gap created by high taxes on legal brands. Without immediate reforms and stricter measures, the losses to the exchequer will only continue to mount. He added that there is an urgent need to increase the country’s tax-to-GDP ratio by taking swift action to bring unregulated tobacco brands under the tax net, ensure the implementation of the track-and-trace system, and intensify crackdowns on manufacturers and distributors involved in illegal trade.
Copyright Business Recorder, 2024
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